2022 (9) TMI 208 - HC - VAT and Sales Tax

Non-disbursal of loan due to tax default - loan have not been granted, for the reasons that there is arrears of tax by the petitioner's father - When the petitioner applied for encumbrance certificate with respect to the property, it was found that no such charge has created, made as reflected in the encumbrance certificate - HELD THAT - Finding that the family property is being produced as collateral security and huge sums of loan around Rs.4,56,00,000/- to be obtained based on the property, and the Department will be left with no source for recovery, hence they have taken precautionary measure on sending the objections, for creating any charge, lien or alienation to the property and send representation dated 22.08.2022 to the Sub Registrar Office, Eranial, which is recorded and the same is also reflected in the Encumbrance Certificate. Hence in the interest of revenue, such restriction has been imposed. The Document No.455/2001 was found without any Encumbrance. Hence processed the loan application, at that time, a communication received from the second respondent on 03.06.2022 informing about the lien and restriction created on the property based on which the loan put on hold. Since the disbursement of loan was based on the public money, considering the public interest and that of the Bank, withheld the loan granted to the petitioner, if the petitioner is able to provide equal alternate property as security without any encumbrance, the same can be considered, with the present property, the loan cannot be disbursed. Petition disposed off.

Summary

Issues:
1. Disbursement of business loan withheld due to tax arrears of petitioner's father.
2. Dispute over input tax credit and pending appeal of tax liability.
3. Imposition of restrictions on property used as collateral for loan application.
4. Justifiability of withholding loan disbursement based on tax-related objections.

Analysis:

1. The petitioner, a managing partner of a trading firm, applied for a business loan which was withheld due to tax arrears of the petitioner's father, as objected by the first and second respondents. The petitioner sought quashing of objections to release the sanctioned loan through a Writ Petition.

2. The petitioner's father, involved in a partnership business, faced tax liability issues leading to a pending appeal before the first respondent. The Special Government Pleader highlighted the tax dispute and precautionary measures taken to prevent loss of revenue, including imposing restrictions on property used as collateral for the loan application.

3. The third respondent processed the loan application based on verified title deeds and land tax receipts, but the loan disbursement was halted upon receiving communication about property liens and restrictions from the second respondent. The third respondent justified withholding the loan to safeguard public interest and the Bank's concerns, suggesting an alternate property without encumbrances for loan consideration.

4. The Court, considering the circumstances and public interest, found no grounds to quash the decision to withhold the loan disbursement. Consequently, the Writ Petition was disposed of with no costs awarded, and related petitions were closed.

This detailed analysis covers the issues surrounding the withheld business loan, tax-related disputes, property restrictions, and the justifiability of the loan disbursement hold based on tax objections as addressed in the judgment by the MADRAS HIGH COURT.